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Spike in fees of private childcare operators due to crush for childcare space

The Straits Times carried an article today on “Childcare crush sees rents, fees shoot up” (ST 21 Sep 2012 page A8). The report cited keen competition for limited new childcare centres that has caused rents to spike from $10,000-$20,000 per month five years ago to $30,000 to $40,000 per month in recent tenders. This has translated into rise of monthly childcare fees of hundreds of dollars per child in this period.

Childcare fees has been rising, fairly rapidly in the recent two years. Rent is a big issue. Since the start of the Anchor Operators scheme in 2010, the number of HDB void deck centres available to private and non-profit operators outside of the Anchor Operator scheme are few. From MCYS’s website, I see around 5 available for each category a year. Each of the two Anchor Operators however, opens around 25 centres a year, for a total of around 50 centres between both. They seem to get their sites from unpublished quotas. Anchor Operators pay $1,000-$2,000 rent per month per centre, based on MCYS’s data of $2-$4 per sqm and typical size of 400-600 sqm.

It is easy to work out the mathematics. A typical childcare centre will have an MCYS approved capacity of 70-100 children, depending on the size of the centre. A centre operating at over $40,000 per month rent will have to charge at least $400 more per child per month compared to an Anchor Operator renting at $1,000 per month. This is based on a maximum enrolment of 100 children. If approved capacity or enrolment is lower than 100 children, they need charge more than $400 in monthly childcare fees just to recoup the cost due to rent differential.

Anchor Operators also get set-up grants (over $100,000 per new centre) and other grants such as for maintenance, learning resources and manpower. MCYS has said recurrent grants (excluding setup and maintenace grants) for Anchor Operators will reach $30 million per year.

Minister of State for MCYS, Mdm Halimah Yacob had stated in her reply to my adjournment motion last week that “we have seen growth in both the Anchor Operator market, as well as growth in the commercial sector”. To her, private operators are not impeded by Anchor Operators.

I will differ on this. The number of HDB void deck sites have become few since this scheme came into being. Operators have to go into commerial properties, which charge higher rents. When a rare new void deck space is made available, existing and aspiring new operators bid unrealistically high prices. They benchmark against commercial properties and may also have been frustrated by earlier unsuccessful bids at lower prices.

This will in turn affect existing centres because when their tenancy is up, HDB will look at market rents and adjust their rental rates accordingly. Recent high bid prices will drive up industry average rental, and cause HDB to increase rental charges.

Right now, there is a shortage of childcare places due to rapidly rising demand. Parents are switching from 3-hour kindergarten programmes or from grandparents’ care into childcare. Many parents have complained to me that they have to wait for more than a year to place their children in an affordable centre. Hence, they have no choice but to enrol with a private operator, despite fees being about $200 more. So there is still sufficient current demand for private operators’ services, despite higher fees due to higher rentals.

MCYS will select another 2-3 Anchor Operators. Anchor Operators will use up almost all the new available void deck centres. When the number of places by Anchor Operators catches up with demand, parents will switch out of private operators due to fees. Private operators will then feel the pinch. Many will close down. They are already operating with tight margins due to rising manpower and rental cost. Indeed, speaking recently with staff at some private centres, they complained of increasingly stressful work situation due to high staff turnover and their companies tightening control of costs. Anchor Operators with recurrent grants for manpower, are in a better position to retain staff and even recruit from other centres. This has caused an outflow of staff from other operators into Anchor Operators in the competition for limited trained staff.

It is a graudal process that is slowly but surely happening. We will be left with only Anchor Operators and high-end premium operators who cater to a different market from Anchor Operators.

The current two Anchor Operators are NTUC First Campus and PCF Sparkletots. They were selected in 2009 based on criteria that included: (a) $5 million paid-up capital, (b) non-profit and (c) non-religion and non-racial. The entire universe of childcare operators in Singapore in 2009 that could have met the criteria may well have been just two operators.

Mdm Halimah Yacob in her reply in parliament stated “The basic entry criteria to the scheme are made known. In addition to development grants and subsidised rental rates, Anchor Operators also receive a recurrent grant to defray the costs of recruiting and developing good quality teachers for their new centres. In other words, whoever wants to take advantage of the Anchor Operator scheme and wants to receive additional grants and support, is entitled to do so. It is open to them, even if you have a commercial entity who feels that it wants to do that, can always set up a non-profit arm. And if they qualify and fulfil the conditions, they are also eligible to become an Anchor Operator and receive the additional support from the Government.”

I find this very strange. What is the purpose of expecting a commercial operator to form a non-profit arm just to be able to enjoy these grants and privileges? It is like stretching your arm around your head to scratch your nose, when you could just scratch your nose directly.

We should be outcome-based, regardless of whether an operator is for-profit or non-profit.

We already know what the two current Anchor Operators can do. They charge around $640 in monthly full-day childcare fees afer receiving all the generous support from the government. If MCYS’s concern is affordability and quality, it can challenge any operator (private or otherwise) who wants to receive similar grants to charge at $640 or lower, while proving they can also run quality operations. As a keen observer and former participant in this industry, I am very confident there will be many players able to do that.

If private operators can do that, it will mean one of two things: either

(a) current anchor non-profit operators are not really non-profit; they make decent surpluses, or

(b) current anchors have not been operating efficiently to bring cost down enough for consumers.

In my parliament speech, I had cited some examples to show why I believe quality private operators are capable of beating the Anchor Operators at their game if offered similar conditions.

Our government seems to have an aversion for giving support to for-profit operators when it comes to childcare. However, when it comes to public transport, they see it fit to pump in billions into infrastructure and bus subsidies for SMRT and Comfort Delgro, both public listed entities. If our government is consistent, shouldn’t these two private transport operators be turned into non-profit operators since it is against our government’s principle to support private companies with grants for their operations?

I also fail to see why the scheme has to be for non-religious and non-racial groups. After all, MOE saw it fit to support schools run by mission groups, buddhist groups and various race-based associations. Is MOE wrong to support education by groups with such affiliations? What’s so special about childcare?

I believe the Anchor Operator scheme is ill-conceived. Granting another 2-3 operators and asking existing commercial operators to set up non-profit arms to qualify can only make matters worse. It will kill of all remaining low-mid cost operators, given they already face enornmous pressure from rising rental and manpower costs. Those receiving such generous support will easily kill off their competitors. It will reduce diversity. It will freeze our industry at the point when this selection for the next 2-3 operators will take place. After that, this group of 4-5 Anchors will corner the market by their sheer size and advantages, and with new childcare sites deprived for new players.

My proposal made in parliament is for an alternative model. In summary, it calls for:

Government to organise all child care sites under its control (void deck, JTC, government buildings) in a managed low rent fashion. This would comprise more than half of all current child care sites in Singapore.

Government to create or secure more sites, even negotiating with large private landlord as anchor tenant and building mega child care sites out of disused schools or on empty land next to primary schools.

Sites can be grouped into package of centres and each package tendered out for all operators (private and non-profit) to compete fairly in based on concept, quality and affordable fees, and not on rent. Rent will be a prefixed low amount equivalent to what non-profit operators currently enjoy, at $2-$4 per square metre. Operators cannot adjust fees without the approval of the government or an independent council monitoring quality and fees of operators. Such package of centres should have a fixed tenancy period, sufficiently long enough for operators to meaningfully recouperate investment and thereafter be subjected to contestability again to see who can continue to better run these sites.

Recurrent grants and other support system should not be given only to non-profit operators but to all who are operating on these sites which are under strict fees and quality guidelines.

I believe this alternative will be more outcome-based. We will be focused on affordability and quality, while providing ongoing diversity. Contestability will keep all operators on their toes, ensuring that no group of operators are annointed with special privileges that can allow them to sit back and relax, knowing that the competition can never beat them because of their special position.

9 comments on “Spike in fees of private childcare operators due to crush for childcare space”

I run a new childcare at a new estate. And our intention to set up a childcare centre is simply to provide quality early childhood care and education to both typically developing children and children with special needs. Both of which is lacking in Singapore. Indeed, the high rental meant that we need to charge a higher fee even though what we would really want is to offer quality care and education at affordable fees. We are not concerned with our profits. We merely wanted to provide a good place for young children to learn. We certainly hope government can do something about the bidding system and to help sincere private operators who have the expertise to raise the quality of early childhood care and education in Singapore.

In case you wonder, we have enquired about the possibility of setting up a non-profit childcare centre. But we have been informed by personnels from MCYS that competition for non-profit childcare centre is stiff too and one of the pre-requisites is that the operator has to have experience in setting up a childcare centre.

So, where can a new operator who has the expertise set up a childcare centre?? And ESP one who also caters for children with special needs which is much needed in Singapore??

Glad to hear of your heart for helping those with special needs. It is unfortunate that in their effort to provide quality and affordable childcare in Singapore, I feel the government has excluded others and created a scheme to will progressively make it more costly for people like yourself to offer your services. My article is also to highlight to the public why private fees have been high even if there are operators who are not profit-seeking.

Yes, I have been following your articles. Thank you so much for highlighting the plight of private operators. The fact remains that anchor operators may be earning more than private operators. I was a Special Educator for quite a number of years and have brought in my expertise to identify young children for early intervention as well as to provide a place to include all children, with and without special needs. I believe in inclusion but at the same time, I must say that our high rental is not helping us.

Hang in there Grace – will be sending my girl to your centre as decided during visit 🙂

Thank you also Mr Yee for your insight into the childcare situation many parents are facing. I have a two and a half year old who will be starting childcare soon. Initially before we discovered Grace’s new centre, we were searching around our estate for potential childcares. The result is – All full, or coming up soon. The latter seems promising but upon enquiry, they keep telling us they don’t know when the centre will officially start. And so we waited for 3 months before one of the centres called to ask if we are still interested. But when we asked the start date it was the same answer – we don’t know.

It is a blessing in disguise in the end as the wait allowed us to chance upon Grace’s centre. I was initially already reluctant to send my girl to PCF and NTUC because of their education style and values. But at that time we did not have other choices, even though we were willing to pay slightly more for better quality childcare.

It is perpetually impossible to enrol in very established high end centres like Pat’s school house because of their siblings-first system. The queuing system to get into other reputable playgroups/childcare like Living Sanctuary Kindergarten was a real eye-opener. It is a whopping 20 hour queue to get pole position, and ~12 hour to get into the top 20 (there were only 20 places). Being first-timers unfamiliar to the rigour of school admission ‘warfare’, our lack of kiasuism cost us a place for 2013 admission.

Ensuring affordable childcare cost for parents first or pushing for childcare diversity by lowering private operator’s cost via grants/lower rental funded by government but born by tax payers first?

Cost effective childcare services are important for the people. Any immediate fee saving is an immediate relief to the financial burden of the parents, I hope that will also led to immediate improvement of their quality of life. The People I refer to are the clerks, the cleaners, the hawkers, the administrators, the IT technician and support staffs, the sales manager, the teachers and helpers in childcare centers, the taxi drivers, the bus drivers, and the trains drivers etc, in short the lower to middle income earners and not the business owners of or suppliers for the childcare centers, top management of the anchor operators or corporations, bosses of the construction contractors, and partners of law firms etc. Imagine, the saving of S$200 per kids for a couple with combined income of S$4,000 with two kids will amount to S$400 per month or 10% of their total income. S$400 may mean little for some, but may mean a great deal for many.

Views and questions below are skewed or biased toward the People.

For the interest of the People, I think the focus should be to bring down the childcare fees as low as possible and as fast as possible. Although this may cause childcare industries players (either direct operators or indirect services providers to the operators etc) to have lesser profit opportunities, the interest of the People come first here.

Presume that it is a FACT and not a statement of opinion or confidence that there are many private operators are capable of offering what the Anchor Operators are offering.. If this is true, Mr. Yee pointed out that it is either :

” (a) current anchor non-profit operators are not really non-profit; they make decent surpluses, or,
(b) current anchors have not been operating efficiently to bring cost down enough for consumers.”

Is it possible that there are more scenario than (a) or (b)? Should two variables, non profit and efficiency, have four combinations instead of two?

I think questions and actions that may yield immediate benefit for the People; that may help to relief the financial burden of the People and improve their quality of life , are as follow:

ACTIONS:

Will the following actions benefit the People better?

i) conduct immediate special profitability and efficiency audit to ensure that the Anchor Operators are non-profit and efficient.
ii) amend the scheme immediately to allow regulator to fine the Anchor Operators, or even prosecute the management, if misleading information are submitted to the authority.
iii) amend the scheme immediately to allow regulator to remove any Anchor Operators status, if the Anchor operators are found to be inefficient or charge fee higher for profit motive, and to fine the Anchor Operators a high multiple (1000x or 2000x) of any profit made.
iv) conduct audit with the help of expert to ensure that the Anchor Operators are operating efficiently.
v) amend the scheme immediately to include a yearly or half yearly operational efficiency and plan of cost reduction report to be submitted to regulator.

After the profit and efficiency audit, four cases may result :

CASE 1. ) IF (ANCHOR OPERATORS – MAKING PROFIT AND EFFICIENT)
This is against the regulator’s intend, by discovering them and removing the profit, will this led to immediate reduction of fees? Will this immediately benefit the People and provide immediate financial relief to them?

CASE 2.) ELSE IF (ANCHOR OPERATORS – NOT MAKING PROFIT AND INEFFICIENT)
Will this led to many private operators eager to enter the profitable business by offering the same services but match the fees? Because the private operators can see the potential of profit (profit from the inefficiency of Anchor Operators where they can be efficient) as no private business operators will do business without profit? If we push for giving the same conditions to private operators instead of finding out what went wrong first, then will we risk unknowingly advancing the interest of private business operators at the expense of the People? Will pushing to give private operators the same terms as the Anchor Operators without details studies first be an ill-conceived suggestion? Why? Because without details studies to find out what is happening and making recommendations based on experience coupled with gut feelings and without understanding the root causes, can we be very wrong? If the audit shows that Anchor Operators are not profit making and inefficient and we did not find out how inefficient the Anchor Operators are or how much fats are there, then by giving the same grants to private operators, will they may made huge profit, if the fats (inefficiency in Anchor Operators) are huge? As private business operators, do we think they will voluntarily reduce their profit, return the grants and lower the childcare fees? To lower the fee means lower profit, and spur competitions that may led to the improvement of Anchor Operator’s efficiency ,and hence resulting in even lower fee, will private business owners do so? Will the private business operators work together with the inefficient Anchor Operators to reduce competitions and arrive at a point where they both sit back and relax, together enjoy the special privileges of government grants ,but maintaining the fees charge to the people? As they know people need the childcare services and if they co-operate and band together, the regulator will have no way to push them for lower fees, and their special position will allow them to hold the People and the regulator at ransom? Do you think the People will stand to gain? Here, are we not helping to advancing the private business and childcare industries owner’s interest at the expense of the People and tax payers?

CASE 3.) ELSE IF (ANCHOR OPERATORS _ MAKING PROFIT AND INEFFICIENT)
Will such discovery led to massive reduction of fees as there are two layers of fats (profit and inefficiency) ? If we do not propose to find out the root causes of the “problems”, and what if the real situation is really that Anchor Operators are making profit and inefficient, then by giving the private operators the same terms as Anchor Operator, will this led to massive profit for the private childcare industries players? Are these massive profits achieve at the massive expense of the People and tax payers? Double “FATS” here, inefficiency and “hidden” profit.

CASE 4.) ELSE (ANCHOR OPERATORS – NOT MAKING PROFIT AND EFFICIENT)
If the Anchor Operators are not making profit and efficient, then is it possible that many private operators are capable of offering what the Anchor Operators are offering at the same fees (ie no profit)? Is it possible that there are many private operators willing to do business with no profit? If there is any, are these an exceptional few rather than common many? Is this sustainable? Or same fee but different quality? If so, is this an apple to apple comparison? If the quality, efficiency and non profit are the same for both Anchor and private operators and private operators are very keen (without profit motive), then what will be their real motives, agenda or objectives? Will private business enters the ring if there is no profit to be made?
Is the statement that many ,private players able to offer the same quality of services and charging the same fees as the Anchor Operators still valid if the Anchor Operators are really operating efficiently and making no profit? Will the People benefit more it we push for ensuring that Anchor Operators are really non profit making and efficient rather then pushing for private business owners (without commitment of non profit making) getting the same governmental grants as Anchor Operators (with commitment of non profit making)?

After the profit and efficiency audit of Anchor Operators and analysis, help can be given or requirements and deadline can be given to Anchor Operators to improve their operations (such as work flow plan, purchasing efficiency, operational cost reductions etc) or they face being removed as Anchor Operators. And all operational and non-operational efficiency saving achieve can immediately pass to the people as fees reduction.

In fact, one can argues that the number of private business operators ,or how easy or readily private business operator’s claim to be able to offer the same quality of service at the same cost of the Anchor Operators can serve as ,a “rough” indicator of the “fatness” or “potential profit due to inefficiency of Anchor Operators”.

NOW DIVERSITY!
After ensuring that the Anchor Operators are operating efficiently and non profit generating, regulator can explores recommendations from private business operators to cater for diversity of services offering. Will this reduce the risk of those despicable and unscrupulous private business operators hurting the People by gaining excessive obscene profit or fats by charging high fees in the name of quality or diversity, or other claims as they know people can use efficient Anchor Operators fees as a benchmark? For People’s interest, is this a better approach to handle diversity?

The challenges are to find selfless leaders to lead the Anchor Operators, not much “meats” for them, and selfless leaders to push policy in the directions for the real benefit of the People. Leaders who can ,focus on the interest of the People, who can focus on improving the life of the People, who can focus on the plight and struggles of the commoners, who can recommend solutions to the regulator to ensure the fees of the childcare services can be lower either though productivity or efficiency improvement. Will such leaders bring real benefit to the People? Will it be a blessing for the People? Will good leaders also be able to recommend solutions to the regulators to ensure that the private childcare industries do not profiteer now or in the future; either in the name of quality, value added, diversity, or any non measurable claims of benefit etc at the expense of the People?

Because childcare services is a necessity, but some may insist quality childcare services is a necessity. But what does quality means to those making 250K a year versus those making 25K a year? Quality, value added, diversity, or any name you call it, but it must be very clear in our minds that all these at what price, what cost and what value?